Thank You

Error.

Though the bull market for U.S. stocks soldiers on months after many pundits called for a correction, the market for base metals has a very different story.

As Quartz points out Tuesday, the price of iron ore, which is used for the steel in buildings, has fallen by more than 30% this year. The price of copper and lead have fallen by single-digit percentages this year.

Base-metal commodities are very much a play on global economic activity. And with China, a major purchaser of metals to fuel its construction, slowing down, it's hardly a surprise that these metals have lost value.

But that doesn't mean that there aren't ways to play the constant hum of global economic activity, even if the pace isn't to one's liking.

An interesting piece on The Wall Street Journal discusses how a few hedge funds are betting beaten-down freight rates for shipping are set to soar. "Some investors argue that, in coming years, there won't be enough ships to accommodate the growing need for transport, a situation that is likely to push freight rates higher," writes the Journal's Christian Berthelsen.

The Wall Street Journal

The article states that the best way to play this trend are futures-like instruments known as forward freight agreements, which are largely traded over the counter. (These instruments are settled against various freight rate indexes published by the Baltic Exchange (for Dry and most Wet contracts) and Platt's Asian Wet contracts.)

"It is a murky market prone to some big swings, an attraction for funds seeking volatile markets to juice their returns," Berthelsen writes.

Investors need to be warned that these investments are as rough as the dark blue high seas in the middle of the Atlantic Ocean. "Freight rates collapsed from record levels after the 2008 financial crisis as a drop in demand for commodities collided with the delivery of many new ships that were ordered during the boom times of the early 2000s," the article states. "Just this year, freight rates — tracked by the widely watched Baltic Dry Index — have plunged 59%. Rates as tracked by the index would have to rise 12-fold to regain their pre-crisis peak."

Given the tepid global demand for products like iron ore, an investor needs to be convinced that the supply of ships will remain tight.

If investing in shipping contracts seems too hot to handle, you might feel more comfortable with the following discussion on bonds. As you likely know, they have defied the conventional wisdom this year by holding their value as long-term yields have fallen amid expectations that the economic growth will be less robust than previously expected.

But is the surprise gain in bond prices in recent months a sign of a bubble, as some have suggested? Yes, you read that right. Some are now worried that bonds, which were expected to crater this year, are instead inflating to potentially dangerous levels.

"Lots of loose talk and lazy reasoning is making the rounds, insisting that the rally in Treasury bonds that dropped 10-year U.S. government yields below 2.5% recently is a dangerous bubble," writes Yahoo! Finance columnist Michael Santoli.

Yahoo! Finance

Santoli doesn't think a bubble exists. And to prove his point, he discusses bonds in relation to a "bubble" checklist devised by Yale University economist Robert Shiller who famously saw bubbles in tech and Internet stocks in early 2000 and in housing on the eve of the financial crisis.

Shiller argues that there needs to be a sharp increase in an asset's price for a bubble to exist. But as Santoli points out, bonds, as a group, have, despite a recent strong move, "been flat over the past year, and this magnitude of price gains hardly qualifies as a powerful surge."

Moreover, a bubble, according to Shiller, comes with attendant public excitement. But with bonds, "continued heavy outflows from Pimco Total Return Fund (ticker:
PTTRX
) – the largest bond fund, run by investing superstar Bill Gross – reflect the public's unease with owning bonds."

The bottom line is that bonds are fairly stable investments that tend to avoid periods of bubbles or extreme deflation. The same can't be said for shipping contracts.